Financial markets predict return to stability despite terror attack
"This is a really rough neighborhood." This is how I answer those that ask what Turkey's biggest obstacles are. Literally surrounded on all sides by either major armed conflict or economic peril, Turkey is undoubtedly in a bad neighborhood. The terror attack on Saturday in Ankara was another reminder of how serious war can be. If early suspicions are confirmed and the Islamic State of Iraq and al-Sham (ISIS) is behind the attacks, the tragic massacre will force Turkey's hand at delving deeper into the civil war in Syria and the fight against the terror group. Writing a financial column during a time of national mourning is awkward at best, however, it's important to realize that the cause of most similar tragedies and armed conflicts is for financial gain. For those that think the motives of the underwriters of terror organization such as ISIS or the PKK are anything but financial, ignorance must be bliss. Both terror organizations are simple proxies of much greater forces that aim to further destabilize the Middle East for their own gain.
With national elections only two weeks away, financial markets appear to continue to believe the Justice and Development Party will be able to garner a majority of the representatives in Parliament. Despite the tragedy in Ankara, the BIST100 (The Istanbul Stock Exchange's benchmark equity index) actually gained ground, inching higher late Monday extending a two-week rally that has seen the BIST 100 return to levels last seen immediately following the election. The Turkish lira is also up 5 percent in the same period against the U.S. dollar. The lira was down sharply against the dollar in early trading Monday, however, markets continued to predict a return to normalcy in recovering all lost ground by late Monday.
Credit default swaps (CDS) or insurance against political and economic uncertainty have cheapened, with five-year corporate CDSs trading down 17 percent in the last two weeks. In a column I wrote before the previous election, I noted that investors generally place bets when undecided voters, in an election where they may sway the outcome, make up their minds. In the United States, research shows this date is about five or six weeks before an election, according to Gallup exit polls. In Turkey, although "undecided" voters are far fewer as a voting bloc, they also tend to make up their mind about three-four weeks before an election. Should previous trends repeat themselves, financial markets will begin to see profit-taking as the election nears as investors have already "bought the rumor" and will begin to "sell the news" as polls begin to tighten margins of error in predicting a single-party win in the elections.
Unless you think the timing of the terror attack in Ankara was a coincidence, you'll agree that the attack was meant to alter the outcome of the upcoming election. Before the bombing on Saturday, the Justice and Development Party (AK Party) was slated to regain a majority as is evident from polls and financial markets that are betting on a solution to the gridlock that has plagued the country. Although I have yet to see any polls that predict a change because of the bombing, financial markets appear to continue to believe "normalcy," or "relative normalcy," will return. While discussing politics is distasteful, at best, in the wake of such a tragedy, the reality remains that there will be a national election in three weeks' time and the terrorists responsible for these attacks did so with the intention of altering their outcome.
While the region is embroiled in armed conflict, financial markets are embroiled in uncertainty as the Federal Reserve (Fed) surprised many investors following their September meeting and only continued to surprise investors last week as the minutes from their meetings were released. While publicly very bullish on U.S. unemployment levels and inflation, the committee discussed global turmoil and deflationary pressures in deciding not to raise rates in September behind closed doors. As I've been predicting for the past year, I doubt the Federal Open Market Committee (FOMC) will be able to raise rates in 2015. Barring extremely positive news out of Asian data slated to be released this week, it appears that the National Bank of Korea will follow India's lead in either cutting rates or keeping them intact. China's import and export data may surprise investors with greater drops than were predicted, only reaffirming consensus that the Fed will delay any action.
Although the Fed's decision to postpone any rate increases has surely helped emerging market economies, including Turkey's, the rally in Turkish financial markets in the last two weeks is far greater than in similar countries who would also have been adversely impacted by a rate increase. The data appears to point to a resolution of the gridlock that has plagued the country since June.
With national elections only two weeks away, financial markets appear to continue to believe the Justice and Development Party will be able to garner a majority of the representatives in Parliament. Despite the tragedy in Ankara, the BIST100 (The Istanbul Stock Exchange's benchmark equity index) actually gained ground, inching higher late Monday extending a two-week rally that has seen the BIST 100 return to levels last seen immediately following the election. The Turkish lira is also up 5 percent in the same period against the U.S. dollar. The lira was down sharply against the dollar in early trading Monday, however, markets continued to predict a return to normalcy in recovering all lost ground by late Monday.
Credit default swaps (CDS) or insurance against political and economic uncertainty have cheapened, with five-year corporate CDSs trading down 17 percent in the last two weeks. In a column I wrote before the previous election, I noted that investors generally place bets when undecided voters, in an election where they may sway the outcome, make up their minds. In the United States, research shows this date is about five or six weeks before an election, according to Gallup exit polls. In Turkey, although "undecided" voters are far fewer as a voting bloc, they also tend to make up their mind about three-four weeks before an election. Should previous trends repeat themselves, financial markets will begin to see profit-taking as the election nears as investors have already "bought the rumor" and will begin to "sell the news" as polls begin to tighten margins of error in predicting a single-party win in the elections.
Unless you think the timing of the terror attack in Ankara was a coincidence, you'll agree that the attack was meant to alter the outcome of the upcoming election. Before the bombing on Saturday, the Justice and Development Party (AK Party) was slated to regain a majority as is evident from polls and financial markets that are betting on a solution to the gridlock that has plagued the country. Although I have yet to see any polls that predict a change because of the bombing, financial markets appear to continue to believe "normalcy," or "relative normalcy," will return. While discussing politics is distasteful, at best, in the wake of such a tragedy, the reality remains that there will be a national election in three weeks' time and the terrorists responsible for these attacks did so with the intention of altering their outcome.
While the region is embroiled in armed conflict, financial markets are embroiled in uncertainty as the Federal Reserve (Fed) surprised many investors following their September meeting and only continued to surprise investors last week as the minutes from their meetings were released. While publicly very bullish on U.S. unemployment levels and inflation, the committee discussed global turmoil and deflationary pressures in deciding not to raise rates in September behind closed doors. As I've been predicting for the past year, I doubt the Federal Open Market Committee (FOMC) will be able to raise rates in 2015. Barring extremely positive news out of Asian data slated to be released this week, it appears that the National Bank of Korea will follow India's lead in either cutting rates or keeping them intact. China's import and export data may surprise investors with greater drops than were predicted, only reaffirming consensus that the Fed will delay any action.
Although the Fed's decision to postpone any rate increases has surely helped emerging market economies, including Turkey's, the rally in Turkish financial markets in the last two weeks is far greater than in similar countries who would also have been adversely impacted by a rate increase. The data appears to point to a resolution of the gridlock that has plagued the country since June.
Last Update: October 13, 2015 01:55